With a defined benefit plan, like a pension, retirees collect a fixed amount in every year of retirement. However, more and more Americans are retiring with defined contribution plans, in which they build assets up mainly through their own input. Under these plans, which are growing in popularity among employers, a retiree can easily deplete his or her nest egg by living too long. Of course, they’re still better off than those who have no retirement plan at all.
When it comes to calculating how much we need to retire, when to start collecting Social Security, or making other key retirement decisions, the problem is that we don’t know how many years we will need our retirement savings to last. “A retirement can be a 30-plus-year proposition. It’s very hard to go back to work in your 80’s if you realize you are running out of money,” says Chartered Financial Analyst Phillip Christenson at Phillip James Financial in Plymouth, Minnesota.
In an exclusive MoneyTips online survey, 452 Americans were asked whether they agreed or disagreed with the following statement:
Incredibly, 2 out of 5 (40.5%) respondents agreed, while less than 1 in 4 (23.9%) disagreed. Since the average 65-year-old is expected to live nearly 20 years (20.6 for women, 18.0 for men), that means people were willing to die younger to avoid dying poor.
“Retirees would rather die than run out of money,” says Certified Financial Planner Brett Anderson, President of St. Croix Advisors in Hudson, Wisconsin. “Running out of money is a real fear for most people with whom I meet.”
When we compared the answers of those who had already retired with those yet to retire, there was not much difference between the two groups. Women (19.6%) were much less likely than men (29.0%) to disagree with the statement to any degree. Income also played a role.
People in families earning less than $150,000 annually agreed more (41.4%) than those from higher-earning families (34.5%), and disagreed less (22.6% vs. 32.8%). Perhaps the people earning less were willing to trade time on Earth for some good times.
“The good news is that retirement is not so black and white,” says Christenson, a fee-only financial advisor and investment manager. “With the proper planning, you can live well into your 80’s or even longer by simply living within your means. Social Security will provide a good base, and then your investments, if managed properly, should be able to provide for the rest of your lifestyle expenses. People need to start planning and investing as early as possible, so they don’t have to live their last few years, or decades, worrying about their finances.”
MoneyTips also asked the same group if they would trade a whopping 20 years of life for comfort.
More than 1 out of 3 Americans (35.8%) agreed that they would give up twenty years in order to enjoy five good retirement years and a happy, but early, death. Only about 1 out of 9 (11.9%) strongly disagreed.
People who are yet to retire are a little more likely to support the early death concept (38.1%) than current retirees (34.1%) are. Women (38.8%) are a little more likely to support the trade-off than men (32.4%) are. Once again, income played a role in people’s feelings on this sensitive subject.
The highest support (45.2%) came from the lowest earners, people in families who made less than $30,000 annually. In families that earned more than that, the idea only garnered 1 in 3 supporters (34.0%)
Says Christenson, “The concept of outliving your money can be very scary, so I am not surprised that, given these choices, a lot of people would choose an early death. I think this relates more to a fear of the unknown. What people don’t realize is that you can have a successful retirement with only a few tradeoffs, and rarely are they facing dire poverty. The key is planning a little ahead before you actually run out of money.”
Regardless of where you plan to retire, the number one factor in ensuring that you can retire on your terms is your 401(k). Make sure that your 401(k) is maximizing its potential with this free analysis that checks your fees, fund mix, and other factors to help you hit your retirement goals. For more of our exclusive retirement data and insights, visit MoneyTips Retirement Survey Findings.